One grapples with this one, …
There’s something about the at-par point.
No matter how much logic we try, when the at-par point arrives, logic fails.
Carrying a loser?
Determined to carry it through till 3x?
Wait till the at-par point arrives.
See how psychology changes.
Watch yourself liquidating the stock, despite all previous planning.
Happens all the time.
Carrying a winner?
Letting your profit run?
Underlying then falls to at-par?
Watch yourself liquidating at the speed of light.
We’re humans, and aversion to loss is a human trait.
This aversion to loss makes us follow the dictates of the at-par point.
How do we go around this, as traders or investors?
Meaning, as we advance in our professions, we don’t wish to be dictated terms to by a particular “non-technical” and “artificially” psychological price point.
So, let’s try and find a workaround.
Underlying is winning. Raise your stop in a defined fashion.
When underlying starts falling, it will hit your stop.
At-par won’t be touched, so it doesn’t even come into the equation.
Underlying is down. Hmmm. What do we do here?
We really want to meet the at-par point here.
Convinced about the stock?
The at-par point lowers.
When market conditions change, it arrives early.
Don’t wish to average down?
Not convinced about the stock anymore?
At-par might or might not arrive.
Well and good.
Look to exit as best as possible, if you’re tired of holding.
As investors, one can think about only getting into stocks where one is confident of averaging down if the stock falls. (Traders are suppose to cut trades at or around their stop).
Tweaking (lowering) the level of at-par helps faster recovery in the markets greatly.